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- 1 - THE BUSINESS – INVESTMENT SECTOR Unlike China, Vietnam, Cuba and dozens of the communist and socialist nations, most investment in the U.S is carried out by private business firms rather than by the government. That investment consists of the product of new plant and equipment, residential housing and additions to our inventories. PROPRIETORSHIPS, PARTNERSHIPS AND CORPORATIONS Proprietorships 7 out of 10 business firms are proprietorships. It is owned by a single person. Chances are nearly all of the places in the neighborhood where you shop are proprietorships. The oldest and simplest ways to own a business are, e.g. grocery, barbershop, candy store, restaurant, family farm, gas station, etc. Advantages Disadvantages 1) Easy 1) Lack of capital (money) 2) Not a lot of money to start 2) Discontinuity of business if owner die 3) Decision process very shift (fast) 3) Lack of division of labor specialization 4) Flexibly (own boss) 4) Unlimited liability Partnerships 1 out of 10-business firms is partnerships. It is own by 2 or more people, although a typical partnership has two people, some law and accounting firms have hundred of partners. Advantages Disadvantages 1) Easy to raise more capital 1) Unlimited liability 2) Division of labor & specialization 2) Discontinuity of business if a one of the partner(s) was to die in the event there are only say two partners in the business Owner leave or die Unlimited Liability Both Proprietors and partners are liable for all debts incurred by their business. Corporation
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- 2 - 2 out of 10 business firms are corporation. The key advantage of corporation is Limited liability. Each owner’s liability is limited to the amount of money he/she has invested in the business. Advantage Disadvantage 1) Perpetual life (never dies) 1) expensive 2) Sell stocks to raise money 2) Pay federal, state, and corporate tax 3) Limited liability 3) Double taxation A Corporation is by law considered to be a Legal Entity . Meaning it is a legal person and as such it can sue and be sued. Virtually all large companies in the U.S are corporations. Although accounting for only 20% of the nations business firms, corporations collect over 90% of all business receipts. While most corporations are tiny enterprises that incorporated to limit the liability of the owners, there are perhaps 2,000 really large corporation. Their companies do most of the nation’s business.
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This note was uploaded on 01/28/2011 for the course ECON 1 taught by Professor Sm during the Spring '10 term at Laney College.

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